This Sounds About Right --- Macro Policy is More or Less Determined by Politics Rather Than Ideas

Peter Klein links to a review of John Wood's new book, and offers his own commentary about the rationalizing role of macroeconomic theory as opposed to its influencing role.

I am planning on posting more on macroeconomics over the next few days because I just returned from an outstanding History of Economic Society meeting and there was an excellent session on Keynes with Roger Backhouse, Brad Bateman, and David Laidler.

Of course, Hayek's well considered view was that Keynes' various "formal" works were mere attempts at rationalizations of Keynes policy recommendations -- i.e. attempts to rationalize the socialization of investment and inflationary policy.

I have to read the book. However, I wonder about some of the more recent macro. It seems to me that the macro of the 90s and 2000s might not be that easy to apply in a policy context. One thing you can say about hydraulic Keynesianism is that it is simple to figure out. Simplicity is a separate issue from political acceptability. Now, of course, doing nothing is simple too.

"Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behaviour. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington."